By Jean-Paul Rodrigue

An artificial consensus

While presenting at recent transportation trade conferences I expressed rather skeptical views about the potential of Blockchains for logistics, which raised a few eyebrows and critiques. The industry is currently drinking its own cool-aid and caught in the standard hype cycle where the benefits of a new technology are exaggerated while the complexity and costs of its implementation are discounted. Many do not understand well what it entails from a technological, managerial and operational standpoint, but are ready to endorse the hype that Blockchains are going to revolutionize supply chains because they are supposed to revolutionize supply chains. This is the classic circular logic flaw. Even worst, many who claim about the merits of the technology have limited experience or particular knowledge on the issue and are simply repeating marketing statements put forward their corporation or organization, further promoting cognitive dissonance. The discourse does not yet match the reality. This is why that at this point I say ‘bullshit’.

There is a need to go beyond this emerging artificial consensus and cognitive dissonance until there is solid evidence of the effective operational applications of Blockchains in logistics; from hype to relevance. A good share of the trade literature and opinions issued on the topic enthusiastically underline the benefits of Blockchains while the discourse remains at that level; Blockchains are beneficial because they are beneficial. What we have so far is rather partial information and many actors (shipping lines, logistics service providers, port authorities, etc.) seriously committed to explore its potential and develop operational systems that are due to transform the world of logistics ‘any time soon’. I am quite confident that impressive results are very likely emerge, but beforehand one has to have the intellectual integrity to acknowledge that transportation and logistics are complex systems to manage and that fitting Blockchains to support this complexity is much easier said than done. Be prepared for disappointments and spectacular failures.

 

The promise of blockchains

At this point, this is where Blockchains stand at; A promise that could either fall short or be reached beyond expectations. Looking more closely at this promise requires the understanding of a technology which in appearance may look straightforward, but actually requires an effort to get a reasonable grasp of. A review of the technology underlines the following:

  • The core principles of a Blockchain (distributed electronic ledger) based on the creation and transmission of unique digital objects (blocks) shared across a network of servers (nodes). It implies an implicit level of digital trust where each transaction is verifiable and immutable.
  • The commercial purpose of a Blockchain is to generate value to logistics chains. Due to the transactional intensity of logistics, the main value proposition involves contract management, coordination (stakeholders able to more effectively share information) and dis-intermediation (stakeholders able to directly interact without a third party). Automated settlements (smart contracts) can also be arranged so that payments are done when a set of conditions have been met and verified (e.g. a shipment has been received at a warehouse).
  • The expected benefits of Blockchains on supply chains are related to its velocity (less latency, improved inventory management), visibility (tracking enabling coordination) and tracing (and tracing (an immutable encoded sequence of events).

All of the above can certainly be an attractive proposition but it is important to underline that most of it remains largely unproven.

A complex puzzle

Blockchains for logistics are therefore a complex puzzle where several pieces must fit together to reach effective outcomes. Among the most importance pieces:

  • A common platform. An important factor in the success of containerization was the fact that the container became a standard open source product open to all. What would be the state of the global economy and international trade if the container was not an open source and subject to different standards? The current risk is that competing Blockchain platforms are developed, leading to duplication. Who will be able to set the standard and have it accepted?
  • A network able to handle the massive distributed computing and storage load. A distributed network may have a higher cost than a centralized network even if this network is more resilient. Who will provide the infrastructure and the energy in a profitable fashion to avoid free riders?
  • Stakeholders along a continuous supply chain willing to collaborate and trust the platform. The electronic coordination of a Blockchain platform is a complex social coordination problem between service providers, users and regulators. How can the diverging and competing interests of stakeholders be reconciled?
  • Sensors and other means to update a massive amount of digital information (blocks) related to supply chain management. Technically, each action performed on a unit of cargo needs to be appended to the Blockchain, which requires a sensor for input. Since the Blockchain itself is assumed to be secure from tampering, what are the risks that its numerous inputs are not?

We are starting to see partial answers to these questions. A large amount of experimentation about the technology over numerous contexts and platforms is underway. These pilots are going to reveal important lessons and information about the actual strengths and pitfalls of Blockchains and how to make them deliver value for its users.

The history of innovation and its diffusion tells us that eventually the hype will be over and the true relevance of a technology is assessed. A similar pattern applies to Blockchains. It needs to be tested and validated. Until then, I will keep saying ‘bullshit’ until we get a clearer view that is less associated with marketing statements and circular logic.

Source: PortEconomics